A private firm in China that registered as a collective or state enterprise was said to wear a hong maozi, a “red hat.” In a common form, the owner attached the firm to some unit or enterprise, took out a collective business license and paid a management fee. That unit did not touch the money or the running of the business.
In 2005, Dai Yuanchen wrote in the journal Southern Economy that the red hat was a countermeasure “forced by discrimination by ownership.” With it, a firm had political protection, found it easier to get things done and could enjoy certain advantages.